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Product Market Regulation (PMR) by the World Bank Group and the Organisation for
Economic Co-operation and Development (OECD) puts the country at the bottom 40 percent. 5
The country’s PMR score indicates a restrictive regulatory environment for competition largely
due to high barriers to trade and investment, barriers to entrepreneurship, and state control. The
Philippines appears to be worse than income comparators such as Colombia and South Africa.
The full enforcement of the PCA helps ensure a level playing field among firms, but there
are challenges. Among these are: (a) achieving the right balance between efficiency of firms
and market competition; and (b) ensuring government-owned and controlled corporations
(GOCCs) and private firms compete on equal terms in the provision of goods and services.
For instance, in the banking sector, merger or consolidation of banks improves the stability of
the financial system. It results in fewer but larger players. The case of a firm that buys out its
only rival allows it to achieve a greater scale in production at a lower per unit cost. However,
this situation benefits consumers only if the cost-savings lead to lower prices, better quality of
products, or increased innovation. The merged or consolidated firm may not have ample
incentives to do these unless properly regulated.
Preferential treatment by the government of GOCCs likewise poses risks because the practice
is not compatible with the promotion of market competition. There is a need to ensure that
GOCCs and private firms compete on equal terms. Currently, GOCCs enjoy tax exemptions
and other incentives. As such, measures must be made to ensure that they are not given undue
advantage when they directly or indirectly compete with firms in the provision of goods and
services.
Government actions, while addressing important social objectives, potentially create
market distortions by limiting the entry and expansion of current players and by
protecting vested interests. These actions include: (a) government-owned monopolies; (b)
government-authorized private monopolies; (c) government control of entry and expansion of
market players; and (d) government provision of goods and services similar to those provided
by private entities.
The existence of government-owned monopolies may be justified by the absence of private
firms that could provide the necessary goods and services. However, if potential private
providers are willing to enter the market, government action that precludes entry may be
difficult to justify.
As for government-authorized private monopolies, the government could either create a GOCC
to supply the good (a government-owned monopoly) or offer tax and market incentives to a
private player (a government-authorized monopoly) to enter the undeveloped market and propel
the capacity building stage. In the latter case, government grants a firm the legal authority to
operate as a monopoly through either a legislative franchise, or an administrative franchise.
These are common in electricity transmission, water distribution systems, and build-andoperate
arrangements for transport facilities, including road services, railway, air and sea
transport.
In some cases, government also controls the entry and expansion of market players, hence
causing prospective players to face non-economic and regulatory barriers to entry. There are
constitutional and statutory provisions that limit foreign equity (e.g., mass media) and the
practice of professions by foreigners. While other societal goals underpin these restrictions,
5
The Philippines PMR indicators is an output of a partnership between the WBG and the OECD to extend the initial OECD PMR
data set to a number of developing economies and emerging markets, including the Philippines. PMR indicators are based on a
qualitative analysis of the regulatory framework collected through a questionnaire that assesses regulations both economy-wide
and in key sectors of the economy. Separate sectoral indicators are built for network industries. This statement is based on
preliminary data only. Final PMR values for the Philippines will be available in 2017.
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